IMF concerned over global trade war

Christine Lagarde, Managing Director of the International Monetary Fund (IMF) on the eve of the 48th Annual Meeting of the World Economic Forum, WEF, in Davos, Switzerland, 22 January 2018. [EPA-EFE/LAURENT GILLIERON]

The International Monetary Fund continues to forecast global growth at 3.9% in 2018, but a rise in trade tensions “is an important downside risk”. EURACTIV’s partner La Tribune reports.

According to the latest forecasts by the International Monetary Fund (IMF), global growth should reach 3.9% in 2018 and 2019. This is in line with the previous World Economic Outlook published in April.

Global growth is expected to remain strong, though it seems more uneven than in the past. According to the international organisation, GDP growth could quickly hit the brink if threats to global trade are carried out.

The European Commission cut expected EU growth for this year by 0.2% compared to its forecast less than three months ago, as output was weaker than expected during the first semester and external risks, especially the trade war, are on the rise.

Trade tensions

IMF projections are clouded by escalating trade tensions and weaker support for global economic integration in some advanced countries. Donald Trump’s unknown and changing economic and trade policy is a cause for concern:

“An escalation of trade tensions could undermine business and financial market sentiment, denting investment and trade. Beyond its immediate toll on market sentiment, the proliferation of trade measures could increase the uncertainty about the potential breadth of trade actions”.

President Donald Trump announced on Thursday (31 May) that the United States would slap tariffs on steel and aluminium from the EU, Canada and Mexico, prompting Europe to say it would respond with “counterbalancing measures within hours” in what amounts to a trade war with Washington.

According to the authors, rising tensions could hinder investment while imposing higher barriers could make tradable goods less affordable, which would “disrupt global supply chains and slow down the spread of new technologies, thus lowering productivity”.

The authors of the latest World Economic Outlook also believe that in this environment world trade volume could drastically drop from 5.1% in 2017 to 4.8% in 2018 and 4.5% in 2019.

Political uncertainty

The international organisation also notes that political uncertainty over upcoming elections such as the midterm elections in the US in November and the European elections in 2019, could deter private investment and weaken economic activity.

The Italian political situation is also of particular concern to the IMF: “ the late May sell-off in Italian bonds has once again turned the spotlight on deep structural challenges and thin buffers at the national level, posing significant risks to the outlook. “.

The organisation also mentioned geopolitical risks, the questioning of multilateralism and domestic strife, all of which weigh down on the outlook of global economies, particularly in the Middle East and Sub-Saharan Africa.

Finally, the organisation added that climate change could further increase migration flows and economic and humanitarian risks, topics that continue to be a divisive issue in Europe.